The other retirement plan: work past 65

Not calling it quits at the first chance has a number of benefits, not the least being more savings and a more active life

It’s already happening: more Americans are working further past the age of 65, an age at which they had planned to retire.

So says the Bureau of Labor Statistics, which also predicts that this trend is just going to intensify over the coming decade. By 2022, the agency says it expects nearly a third of Americans aged between 64 and 75 to continue trudging to work every weekday morning and making the evening commute home again. That’s up from 20% of those in the same age range back in 2002, and 26.8% in 2012.

And if you think you won’t be among them, you might want to reconsider.

Part of this picture, of course, is due to the fact that some of us would kind of like to keep working. We’re staying healthier for longer, and there are only so many rounds of golf you can play before the whole leisurely retirement concept starts to pall. Let’s face it: when 65 became the accepted age for retirement, most new retirees could expect to live only a decade or so longer; today that’s unrealistically low.

If you don’t have a passion you want to pursue in your “golden years” (and always assuming that your employer doesn’t have a mandatory retirement age) it’s worthwhile sticking around at your job for a few years longer. Unless you’ve got a compelling reason for leaving the scene early – illness, a toxic work situation or layoffs – ask yourself whether you really want to spend nearly as much time retired and not earning income as you did making money.

Getting accustomed to the idea of working more years is also another great way to cope with what I call “retirement panic”: the phenomenon of being freaked out by the impossibly enormous nest egg that pundits say you need to have accumulated in order to retire.

In my last column, I talked about the role that immediate annuities can play in helping you address this, along with the need to accept the idea that you’ll need to tap into your home equity in some way.

The next strategy to ponder is whether – and how – to keep working past the age of 65.

A large percentage of Americans over the age of 50 figure that they’ll probably work for pay after they retire. That’s a great idea, financial planners agree.

“Living for 30 years or even longer without an earned income is impossible,” says veteran financial planner Ric Edelman, bluntly. “Even if all you earn $20,000 a year, that’s going to have a huge impact on prolonging the lifespan of your money.”

Pretty … boring way to spend the rest of your life. Photograph: Fred Hoogervorst for the Guardian

There are four distinct financial benefits from working longer. As long as you’re still earning, you postpone the date that you have to tap your nest egg. Meanwhile, those retirement savings have a chance to keep generating returns – tax free. You may even be able to keep contributing to a 401k or IRA.

Moreover, tough as it may be to admit, every year that you work is one year closer to your death, meaning that your (larger and still growing) nest egg won’t have to stretch as far.

But you’ll need to start thinking about what working after 65 means in practice.

Many of Americans assume they’ll find a part-time job or start a consulting firm after they retire. Anthony Webb, the New York-based economist for the Center for Retirement Research notes that there’s a bit of self-delusion at work here.

“The truth is that when people leave their ‘lifestyle jobs’, they end up leaving the workforce pretty quickly,” Webb says. “It’s well documented that all the ‘bridge jobs’, the consulting gigs, the part-time work lasts perhaps a year or two, but not longer.”

Don’t fool yourself. If you’ve worked as an employee all your life, the odds that you’ll suddenly become a successful consultant at the age of 60 or 65 are relatively slim. True, you’ve probably heard of examples where it’s been a great success, for people with expertise and extensive contacts. But hey, we’ve also all heard of people who’ve won the lottery jackpot, right?

“Most people are natural employees,” argues Webb.

Those part-time jobs? They’re tougher to find these days than they once were, and when times get tough, part-timers and contract workers are the first to feel the pain.

Admittedly, not all older Americans will have as much choice as they might want when it comes to working later in life. Older workers may be more likely to lose their jobs, and the data suggest it’s tougher for them to find a new post.

But that’s another argument in favor of planning ahead. If it’s clear that working longer will give your retirement plans a big financial boost, start thinking about how you’ll do that today, rather than trusting fate.

If you plan to set up a consulting venture, start working toward that well in advance, and prepare to make the leap before you need to. Look around you: are most of your colleagues significantly younger than you are? That may signal that your employers are less likely to keep you on the payroll once you’re over 65. If you think you may need or want to work into your early 70s, now’s the time to seek out skills and employment opportunities that will let you do just that.

I’m not going to try to suggest that 75 is the new 65. But given that every year you can keep working past the age of 65 can deliver more than a year’s worth of financial benefits, taking a hard-headed view of what that means in practice can only be an advantage.